Moody's To Downgrade Naftogaz?

Moody’s today placed Naftogaz’s ratings on review for possible downgrade following recent statements made by the government about the company’s financial health. Moody’s said the review would center on the factors affecting its baseline credit assessment and a review of assumptions regarding possible government support. Moody’s ratings for Naftogaz are Ba3 for long-term foreign currency corporate family debt and Ba2 for senior unsecured foreign currency debt (and Naftogaz’s Eurobond). Vladimir Nesterenko: Recently Nikolai Azarov, the new first deputy prime minister and finance minister, said in a local newspaper interview that the government would investigate how Naftogaz had gone from being profitable to “practically bankrupt”. We think Azarov’s statement was more political rhetoric than reality, although Naftogaz’s financial position is indeed weaker than last year. We expect recent gas tariff increases will improve the company’s financial standing in the remainder of this year and make it profitable next year. However, the fact that Naftogaz has ceded much of the gas market to UkrGazEnergo, its joint venture with RosUkrEnergo, has reduced Naftogaz’s cash flows and could hurt its ability to service its debts.